Capital structure II
Costs of Financial Distress
Costs of Financial Distress - Costs arising from bankruptcy or
distorted business decisions before bankruptcy.
Market Value =
Value if all Equity Financed
+ PV Tax Shield
- PV Costs of
Valuating the levered firm
Valuation and Capital Budgeting for the Levered Firm
In a strict MM world, firms can analyze real
investments as if they are all-equity-financed.
Under MM assumptions, decisions to spend money
can be separate
Research Institute of Economics and Management, SWUFE
Email: [email protected]
3rd year Undergraduate
What is corporate finance?
Every decision that a business makes has financial
implications, and any deci